TaxTMI 
TaxTMI 
2022 (12) TMI 1209
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....t] by the Assistant Commissioner of Income-tax, (International Taxation) 4(2)(2) Mumbai [Assessing Officer] on the basis of the directions of the Dispute Resolution Panel [DRP] for the aforesaid assessment year on the following among other grounds: A. Taxability of Search Fees 1. That on the facts and circumstances of the case, the impugned assessment completed vide order dated 21.01.2022 passed under section 143(3) read with section 144C(13) of the Act, is illegal and bad in law. 2. That on the facts and circumstances of the case, the impugned assessment having been completed on the basis of directions issued by the DRP under section 144C(5) of the Act, without judiciously and independently considering the factual and legal objections to the draft assessment order, is illegal and bad in law. 3. The learned DRP/Assessing Officer erred in holding that a sum of Rs.12,25,20,725 /- received by the appellant from Spencer Stuart India Private Limited [SS India] towards executive search fees is taxable as fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961 and under Articles 12(5)(a) and / or 12(5)(b) of the India-Netherlands....
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....lant objects to the same. "Using the software and the network as provided by assessee of SS India, the search services are rendered by the Indian entity using the Spencer Stuart's Worldwide Client List Database, Spencer Stuart's Mailing List Database, Spencer Stuart's Knowledge Management Resources Pages, Spencer Stuart's Board of Director's Database which SSI has procured from SSI BV as part of Licence Agreement (supra). These services are provided by SSI on behalf of SSI BV and then the bill is raised on the clients. However, the client it required to pay the same, directly to SSI BV. Hence the receipts in respect database provided of Spencer Stuart group by assessee to SS India for search services, is ancillary and subsidiary to the enjoyment of the licence, trade mark and other rights granted by the assessee to SS India, the receipts in respect of which have already been offered by assessee as Royalty under article 12(4)..." The learned DRP/ Assessing Officer erred in holding that services rendered by the appellant makes available the technology/technical know-how to SS India without providing any documentary evidence to support the finding....
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....der which are without any basis and contrary to the facts of the case and the appellant objects to the same. "A perusal of this agreement clearly demonstrates that the executive search fees and Management service fees is nothing but an ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 4 of this Article is received. These services are rendered by the Indian entity using the Spencer Stuart's Worldwide Client List Database, Spencer Stuart's Mailing List Database, Spencer Stuart's Knowledge Management Resources Pages, Spencer Stuart's Board of Director's Database which SSI has procured from SSI BV as part of Licence Agreement (supra). These services are provided by SSI on behalf of SSI BV and then the bill is raised on the clients. Thus the services which are being rendered as part of the Service agreement are basically based, ingrained and totally dependent on the Licence agreement, receipts of which are undisputedly have been offered as Royalty by the assessee itself in the past years." 17. The learned DRP/ Assessing Officer erred in holding that management se....
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..../11/2019 declaring total income of Rs. 17,99,110. The assessee is engaged in business of executive search services and related support services to group companies and third-party franchises. The case of the assessee was selected for scrutiny and vide draft assessment order dated 23/09/2021 passed under section 144C of the Act total income of the assessee was computed at Rs. 21,16,51,560, after making various additions. The assessee filed detailed objections before the learned DRP. Vide directions dated 05/01/2022, issued under section 144C(5) of the Act, objections filed by the assessee were rejected, inter-alia, following the directions issued in assessee‟s own case for preceding assessment years. In conformity, the Assessing Officer ("AO") passed the final assessment order dated 21/01/2022 under section 143(3) read with section 144C(13) of the Act. Being aggrieved, the assessee is in appeal before us. 4. The issue arising in grounds No. 1 - 9, raised in assessee‟s appeal, is pertaining to taxability of search fees. 5. At the outset, during the course of hearing, the learned Representative appearing for the parties fairly agreed that this issue is covered by the ....
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...., license fees and search fees are governed by separate and distinct agreements entered into by the assessee and SSIPL and they would constitute different sources of its income for the year under consideration. In other words, receipt of search fee by the assessee was independent of earning the license fee. As per the SA search fees was to be determined on the basis of relative contribution of each party, which menas in a given situation, SSIPL could also receive search fees from the assessee. But, same was not true for licence fee. The assessee had not to pay anything to SSIPL as licnece fee. ESF were independent services and were not provided for the purpose of enjoyment/application of right, property etc. governed by the LA. Services, ancillary and subsidiary to the use of license/ trademark/software are provided for in the LA and same had no correlation with the SA. It is safe to say that the DRP had wrongly held that SA was originating from LA. Core business of the group was to identify, to evaluate and to recruit of senior personnel for a fee. If is found that to carry out the search function, SSIPL would employ consultants, who were supported by researchers, knowledge manage....
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....sitation in holding that the search fee could not be treated to be ancillary and subsidiary to LA, that the same did not in any way aid, promote or supplement the application or enjoyment of the right, property, or information, that the search fee received under the SA was independent of the LA and was not taxable in India. First effective ground of appeal is decided in favour of the assessee." 9. The aforesaid discussion by our coordinate bench clearly brings out that the Licence Agreement which results in earning of Royalty income (which has since been offered to tax) and the Service Agreement (which results in earning of Executive search fee) have been held to be separate and distinct agreements thereby constituting different sources of income. Our coordinate bench analysed the entire activities between assessee and SS India and observed that the principal business of SS India was to carry out or execute the mandate of Executive searches and thus the Executive search fee generating activities cannot be treated as ancillary and/or subsidiary to the Licence Agreement. Our coordinate bench has noted a pertinent fact that the licence fee payable in terms of the Licence Agre....
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....r to discharge its onus as to why a different stand is being adopted, especially considering the fact that the nature and the sources of income in question remains the same. Therefore, on this aspect also, we are not inclined to uphold the stand of the assessing authority. 11. At this stage, we may also briefly touch upon the APA dated 30.08.2016 (supra) with the Indian subsidlary, l.e. SS India. In terms of the said APA, a copy of which is placed in the Paper Book, the period covered includes the captioned assessment years also. The transactions covered by the APA, inter-alia, involve payment of licence fee by SS India to the assessee before us as well as the Executive search transactions between SS India and the assessee before us, inter-alia, involving the impugned earning of 28,37,57,880/- by the assessee as Executive search fee from SS India. We are only trying to point out the aforesaid to say that the APA entered into by the Competent Authority with SS India covers the instant transactions, which are a mirror image in the hands of the assessee before us. In fact, the proposition that the Licence Agreement (resulting in payment of licence fee offered to tax as Royalt....
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....d that the said fee is earned by the assessee "for using the Spencer Stuart's Worldwide Client List Database, Spencer Stuart's Mailing List Database, Spencer Stuart's Knowledge Management Resources Pages, Spencer Stuart's Board of Director's Database and other data base as per schedule B to the highlighting the aforesaid features of the APA to point out that there is a complete dichotomy between the nature and characterisation of the transactions accepted in the APA in the context of SS India vis-a-vis the assessing authority of the present assessee. Ostensibly, it does not need any more emphasis that the nature and characterisation of the amount in the hands of the present assessee has to correspond to what has been accepted by the income-tax authorities in the case of the payer of the same, i.e. SS India. In fact, at the time of hearing, the learned representative for the assessee referred to the modified return of income under Section 92CD of the Act filed by SS India subsequent to the APA dated 30.12.2017 as also the order passed by the TPO under Section 92CA(3) dated 09.06.2017 and the assessment order under Section 143(3) dated 30.12.2017 in the case of SS....
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....have been detailed in the APA, clearly bring out that it encompasses a whole range of services for performing the Executive search and can by no stretch of imagination be characterised as 'Royalty'. Apart therefrom, we find that there is no reasoning made out by the Assessing Officer as to why the Executive search services activity is in the nature of 'Royalty'. Pertinently, it is stated that the search fee is received "for using the Spencer Stuart's Worldwide Client List Database, Spencer Stuart's Mailing List Database, Spencer Stuart's Knowledge Management Resources Pages, Spencer Stuart's Board of Director's Database and other data base as per schedule B to the agreement which SSI has procured from SSI BV as part of Licence Agreement (supra)". Notably, the fee which is earned by the assessee for allowing use of its trademark, trade name and software, etc. owned by it is a matter of contract in terms of the Licence Agreement dated 01.01.2006 for which the assessee receives Royalty. The payment of said Royalty has been factually found to be at arm's length price for the period under consideration as would be borne out of the order of TPO dat....
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....nal in assessee‟s own case for preceding assessment year, we find that the issue of taxability of search fees was decided in favour of assessee in assessment year 2011-12 also and the coordinate bench, in aforesaid decision, supported the findings rendered in preceding year as well as its conclusions, by reference to benchmarking agreed between Indian subsidiary and CBDT vide APA dated 30/08/2016. Therefore, we are of the considered view that findings rendered in preceding assessment year are equally applicable to the year under consideration even though it is not covered by the aforesaid APA. Thus, respectfully following the order passed by the coordinate bench of the Tribunal in assessee‟s own case cited supra, we uphold the plea of the assessee and direct the AO to delete the addition on account of search fees. As a result, grounds No. 1 - 9 raised in assessee‟s appeal are allowed. 8. The issue arising in grounds No. 10 - 17, raised in assessee‟s appeal, is pertaining to taxability of management fees. 9. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the year under consideration, assessee received man....
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....vices, information technology services, human resource services, treasury services, training services, marketing services, worldwide database services, oversight, control and management services and administration services to SS India, in respect of which assessee received management service fees. However, as is evident from the record, lower authorities have not examined any of the services and by following its findings rendered in respect of search fees taxed management service fees also as "fee for technical services‟ under Article 12 of India Netherlands DTAA. Thus, in view of above, we deem it appropriate to remand the issue of taxability of management service fees to the file of AO for de novo adjudication, as per law, after necessary examination of relevant agreement. The AO is also directed to examine each and every service in respect of which assessee has received management service fees, while deciding this issue. The assessee shall be at liberty to furnish all the evidences in support of its claim. Needless to mention that no order shall be passed without affording reasonable opportunity of being heard to the assessee. As a result, grounds No. 10 - 17 are allowed f....
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....nce, reimbursement for purchase of fixed assets and other miscellaneous expenses, that the reimbursement of the expenses were supported by third-party invoices, that the reimbursements related to service agreement between the assessee and SSIPL for sharing the company services, that the services provided by the assessee were purely passed on as reimbursement of actual cost without any markup. We hold that marketing services are primarily in the nature of travel and stay abroad for Indian employees visiting overseas for global meetings, that Insurance coverage for employees is totally unrelated to search fees, that reimbursement of software license cannot be linked to search fees, that the QUEST NT software formed part of LA and the license fees were already offered to tax as royalties., that a confirmation letter dated 6/3/2014 submitted to the AO by SSIPL pertaining to purchase of fixed assets amounting to Rs.16,58,018 is part of the PB. In our opinion, reimbursement of expenses would not constitute FTS as per Article 12 of the tax treaty. Here, we would also like to refer to the judgment of AP Mollar (supra). Facts of that case were that the assessee was a foreign compan....
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.... co-ordinate cargos and ports of call for its fleet were findings of fact. Once these were accepted, by no stretch of imagination, could the payments made by the agents be treated as fees for technical services. The payments were in the nature of reimbursement of cost whereby the three agents paid their proportionate share of the expenses incurred on these said systems and for maintaining those systems. Neither the Assessing Officer nor the Commissioner (Appeals) had stated that there was any profit element embedded in the payments received by the assessee from its agents in India. Once the character of the payment was in the nature of reimbursement of the expenses, it could not be income chargeable to tax. Moreover, freight income generated by the assessee in the assessment years in question was accepted as not chargeable to tax as it arose from the operation of ships in international waters in terms of article 9 of the DTAA. Once that was accepted and was also found that the Maersk net system was an integral part of the shipping business which was allowed to be used by the agents of the assessee as well in order to enable them to discharge their role more effectively as agents, a....